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Chapter: Civil : Engineering Economics and Cost analysis : Demand and Schedule

The Reason for the Exceptional Demand Curve

i. War ii. Depression iii.Giffen paradox iv. Demonstration effect v. Ignorance effect vi.Speculation



i. War: If a short age is feared in anticipation o f war people ma y start buying for building stocks, for hoarding even when the price rises.

ii. Depression: During a depression, the prices o f commodities are very low and demand for them is also less. This is because of the lack of purchasing power with consumer.


iii. Giffen paradox: If a commodity happens to be necessity of life like wheat a nd its price goes up, consumer are forced to curtail the consumption of more expensive foods like meat and fish and wheat being still the          cheapest the y  will consume  more  for  it.  The  marshallion example is applicable to develop ed economies. In the case of underdevelopment economy, with  the     fall  in  the  p rice of      an  inferior  commodity  like  maize.  Co nsumers  will  start consuming more o f the superior commodity like wheat. As a result, the demand for maize will fall .this is what Marshall called giffen parado x whic h makes the d emand curve to have a positive slope.

iv. Demonstration effect: It consumers are affected b y the principle of conspicuous consumption or demonstration effect the y will like to buy more o f those commodities which confer distinction on the possessor, when their prices rise. On the other hand, with the fall in the prices of such articles, their demand falls, as is the case with diamonds.


v. Ignorance effect: Co nsumers buy more at a higher price under goods the influences of the ignorance effect where a commodity ma y be mistaken for some other co mmodity, due to its price, deceptive packing, label, etc.


vi.Speculation:  Marshall  mentions  speculation  as  one  of  the  important  exception  to  the


downward sloping demand curve. According to him ? the law of the demand does not apply to the demand in a campaign between groups of speculators. A group, which desire to upload a great quantity of a thing on to the market, often begins b y buying so me of it openly; it arranges to sell a great deal quietly and through unaccustomed channels.?


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